Canceled checks

Along with your bank statement, you will most likely receive all the checks you wrote that were cashed during that month.' You should keep these in case you ever have to prove to a supplier that you paid an invoice. The bank stamp on the back of the check carries information as to when and where the check was cashed.

• Liabilities: Increases credit the account, and decreases debit the account

• Expenses: Increases debit the account, and decreases credit the account

• Revenues: Increases credit the account, and decreases debit the account

Assets and expenses are affected the same way because they both represent outflows of cash. When you spend money, you are either paying for an expense or buying an asset. Liabilities and revenues are affected the same way because they both represent inflows of cash. When money comes in, you have either sold something or you are borrowing funds.

Let's look at an example: You go to the office supply store to buy pens and paper for your office for $37.50. You pay for the purchase with the company debit card. (We will ignore taxes for now.) When you get back to your office, you will record the transaction:

            DR     Office supplies (an expense) $37.50

            CR     Bank (an asset)                                            $37.50

You are increasing your expenses and decreasing your bank account by the same amount. One of the fundamental principles in accounting is that for any given transaction, DEBITS EQUAL CREDITS. You can see this principle at work in the example above. You have increased your office supplies by the exact amount that you have decreased your bank account. It's like the principle of cause and effect. For every action, there is a reaction. (Okay, I know I'm paraphrasing heavily but you get the point!)

Let's look at another example: You sell some of your inventory to a customer for $475.25. They will not pay you for another 30 days. Notice that even though your customer has not paid you yet, the sale has still occurred and needs to be accounted for. Your entry would be as follows:

                 DR        Accounts receivable      $475.25

                 CR        Sales                                            $475.25

You have simultaneously increased your receivables balance and your sales.